Schäuble Pushed for a Grexit and Backed Merkel into a Corner

A Government DividedSchäuble's Push for Grexit Puts Merkel on Defensive

German Finance Minister Wolfgang Schäuble had a plan to push Greece out of the euro zone. Chancellor Merkel wasn't sure what to do about it. The result is widespread resentment of Germany and a damaged Franco-German relationship. By SPIEGEL Staff

There are days when Wolfgang Schäuble's staff would prefer to be somewhere else. In Timbuktu perhaps, or up on the Acropolis. In any case, far, far away.

Last Thursday, the German finance minister rolled into an elevator in the Reichstag in Berlin. He was irritated, for he soon had to appear before the Affairs of the European Union Committee to defend a bailout plan for Greece that he didn't even believe in. "Grottenfalsch," as he would say -- "dreadfully wrong."

In his wheelchair, Schäuble leaned to one side and rubbed his face. "What about the appointment at 5:30 p.m.?" he wanted to know. "It's in the schedule," a staffer responded, immediately wishing he was somewhere else. "In the schedule?" When Schäuble gets irritated, he doesn't raise his voice. Instead he stretches out his vowels like a rubber band. "Scheeeeeeedule," he said, and then issued an order: "Call the chancellor's secretary and ask where it is."

He then inhaled, flashing a pugnacious smile and turned his wheelchair around. He then prepared for battle of a kind he had never before fought in his long political career -- a battle against the Greek government, against American economists, against large swathes of European public opinion and also, to some extent, against the chancellor herself.

Had it been up to Schäuble, Germany would have shown the Greeks the euro-zone door long ago. His problem, however, is that the chancellor doesn't share this sentiment. Merkel rejects his insistence because she doesn't want to go down in history as the government leader responsible for the disintegration of Europe.

If it were any other minister that had so persistently refused to endorse her line, she would likely have got rid of him long ago. But she can't do that with Schäuble. His hard line is precisely what makes him so popular among the Germans.

Moreover, Schäuble enjoys a special place in Merkel's cabinet. He has been a member of German parliament, the Bundestag, since 1972; he served under Helmut Kohl as interior minister and party leader; and he negotiated the reunification treaty in 1990. Shortly thereafter, he was shot and crippled by a mentally ill man. Schäuble isn't simply a politician, he's a piece of German history, and therefore untouchable. He even has the chutzpah to threaten Merkel with his resignation should she force him to act against his convictions. "If anyone were to try, I could go to the president and ask to be relieved of my duties," he told SPIEGEL in an interview.

A Curious Mix of Indecision and Brutality

But that freedom is now becoming an issue for Merkel. The euro summit last weekend came close to failing because Schäuble tried to push through such tough demands. And this from a finance minister who has done so much for European unity. Just three years ago, Schäuble won the International Charlemagne Prize of Aachen for his contributions to the integration of the Continent, but is now regarded in southern European countries as the epitome of the ugly German. This too adds to the drama of Wolfgang Schäuble.

In past decades, the burden has always fallen on Germany to be the mediator in Europe. But only when Germany suppressed its own interests was it possible to find harmony in the complicated meshwork that is Europe, where the Catholic South meets the Protestant North and the rule-fixated Germans and the anarchistic Greeks come together. No one has internalized this rule more than Schäuble -- or so it seems. Now Germany's policy on Europe is revealing itself as a curious mix of indecision and brutality. That brutality, for the most part, comes from Schäuble.

It was undoubtedly the right move to impose strict reforms upon Greece. This was the only way to persuade countries like Slovakia and Latvia to release new funds. But last weekend's marathon summit in Brussels didn't only bring forth a new aid package for Greece. A new Germany was also presented, one with a rather uncomely face.

It was there that Schäuble raised the idea of pushing Greece out of the euro. It was a suggestion that broke a European taboo. Germany, of all countries, was showing another euro-zone member the door. Germany, whose rise is so closely linked to the solidarity and forgiveness of its neighbors.

The summit was therefore not merely a break in Germany's Europe policy. It also described the tragedy of Merkel and Schäuble, chained together yet increasingly working against one another.

The calamity began last Thursday when top members of Merkel's coalition government met at the Chancellery. Merkel was there, as was Schäuble, Social Democrat (SPD) leader Sigmar Gabriel and Foreign Minister Frank-Walter Steinmeier, who is also from the SPD. The idea was to prevent a rift with France, but the group also deliberated over how to proceed with Greece if it refused to implement the reforms demanded by its creditors.

Schäuble proposed a temporary Grexit, in such a situation. Merkel and the SPD leaders agreed, but for them it was little more than a thought experiment. Greece, they knew, would never willingly sign on to a Grexit.

A Greek Time Out

The next evening, though, Schäuble's state secretary, Thomas Steffen, sent out a paper with the title, "Comments on the latest Greek proposals," to a number of colleagues, including Eurogroup chief Jeroen Dijsselbloem. Under item No. 2, it said that if Athens does not comply with creditors' demands, the country could be encouraged to take a time out from the euro zone for at least five years.

Schäuble and his people see their proposal as an offer to cooperatively solve a Grexit -- at least that's the official line. But Schäuble also signaled to the Greeks that he could rally a majority of finance ministers to get behind a Grexit, even against Athens' will.

When Schäuble landed in Brussels on Saturday morning, he noted that his proposals were not incorporated into the ministers' working paper. It's not clear who was responsible. It could have been Italy, for example. Or France. Both countries staunchly oppose the expulsion of Greece from the euro zone. Schäuble was beside himself.

Schäuble first consulted with other conservative finance ministers belonging, as Schäuble's CDU does, to the European People's Party. Like Schäuble, most were in favor of a Grexit and the men hatched a plan for how they could force Greece from the common currency area. The ministers agreed to formulate such strict conditions for a third aid package that the Greek government would never be able to accept them. As a means to push Greece out of the euro, Schäuble had devised a so-called trust fund, into which all revenues from the sale of Greek assets would flow. For Greek Prime Minister Alexis Tsipras, that would have been impertinent enough. But the conservative ministers wanted to go even further and demand that the fund be located in Luxembourg, a stipulation Tsipras could not possibly accept.

When Schäuble arrived at the Eurogroup meeting later, he could at least chalk up a partial victory. He was able to get the Grexit idea, and the trust fund model, into the final document, but both of them were in square brackets, meaning the finance ministers were not in agreement. But still, European leaders received a draft text in which a euro zone without Greece was officially mentioned.

As Schäuble's proposal of a temporary Grexit became public over time, outrage ensued. "To Germany I say, enough is enough," Italian Prime Minister Matteo Renzi said. Luxembourg's foreign minister, Jean Asselborn, and Austrian Chancellor Werner Faymann complained that Schäuble obviously wanted to humiliate a European partner.

It quickly dawned on Merkel and her advisors just how explosive Schäuble's idea was. Suddenly she was seen all over Europe as a chancellor who wants to throw Greece out of the euro.

A Round of Four

As the summit began on Sunday at 4:15 p.m., the mood was depressed. European Council President Donald Tusk opened proceedings by asking whether everyone was in agreement about wanting to prevent a Grexit. The leaders answered in the affirmative, Merkel included.

Yet the finance minister's paper still remained the working basis for the negotiations and Merkel rejected Tusk's suggestion of formulating a shorter one. The chancellor wanted to keep Greece inside the euro and, at the same time, meet Schäuble's demands -- an almost impossible feat. Merkel's indecision tainted the summit from the get-go. Tusk quickly realized the futility of debating in the full round.

Instead, he convened a round of four that would negotiate three times that night. It would include Tusk, Tsipras, Merkel and French President François Hollande. They retreated to the "Salon du Président" on the European Council building's eighth floor. Tsipras requested to bring his new finance minister, Euclid Tsakalotos. Merkel countered by saying that if Tsakalotos came, Schäuble would have to come too. For a moment, Tusk and Tsipras were speechless. Only then did they grasp the humor in Merkel's words.

Tsakalotos was allowed in while Schäuble stayed outside. The negotiations took 17 hours, lasting until 9 a.m. Monday morning. Around 4:15 a.m., as all of the leaders were again convening, it looked for the first time like an agreement might be possible and optimism quickly spread. Tsipras said he had to make a few phone calls to Athens, needing to speak to the Greek president and a few party leaders. When he returned, he said he could grudgingly accept all of the terms except Schäuble's privatization fund. "Absolutely unacceptable," he called it.

Tusk interrupted the meeting for the third time and upped the pressure. Finally, Merkel agreed to let Greece use part of the proceeds from the sale of Greek state assets for investments. But a dispute arose when it came to determining just how much. Tsipras wanted 50 percent, Merkel only 10. Hollande, Tusk and Dutch Prime Minister Mark Rutte suggested 25 percent, or 12.5 billion ($13.6 billion). Tsipras and Merkel both refused. Merkel suggested adjourning and calling another summit for Wednesday. It was a moment at which the risk of a Grexit again seemed dangerously close. Schäuble would have reached his goal.

Tusk, however, categorically rejected an adjournment. He said if everyone left before reaching an agreement, he would announce that the negotiations had failed. An 86 billion rescue package had already been approved. It was inconceivable to think that a few billion euros more could cause the deal to collapse. Around 6 a.m., Eurogroup head Dijsselbloem called SPD chief Gabriel, asking for help. Gabriel, in turn, called Merkel and Hollande. Later, Djisselbloem would tell the SPD parliamentary group that "suddenly things worked that once seemed impossible." In the end, Merkel and Tsipras agreed. The summit was rescued.

Difficult for Tsipras

A Greek crisis, however, was not yet averted. The Brussels paper had effectively made Greece a ward of the euro zone. The government in Athens would have to cut pensions and raise taxes. National sovereignty would essentially be a fantasy. Asked during the press conference that followed the 17-hour negotiations which parts of the deal bore Tsipras' handwriting, Merkel answered: "It's there, namely in the high funding requirements."

Schäuble, for his part, would continue to insist that Greece leave the euro. A clear commitment to Athens, at least, was not discernable. Ultimately, it's Schäuble who has to hammer out the details of the next bailout package, and as things currently stand, he'll use every opportunity to make life more difficult for Tsipras.

From Schäuble's point of view, his insistence on a Grexit isn't anti-European, but rather a service to the greater community. He believes that Greece does not fulfill the prerequisites for being a responsible member of the euro zone. To him, it's a country that doesn't even have a functional tax system, but one which named Yanis Varoufakis to the position of finance minister, a man to took it upon himself to lecture all of Europe about economics.

Of course Schäuble knows he can't get around Merkel. If she's made up her mind, there will be no Grexit. On the other hand, the mood among German conservatives is clearly on Schäuble's side. The fact is, in terms of European policy, he's got more credibility than Merkel, who has never been able to shake the impression of lacking the appropriate amount of enthusiasm for Europe.

That's what makes it so difficult for the chancellor at the moment. She lacks the means to discipline Schäuble. She is fully aware of just how much negative attention her finance minister is attracting throughout Europe. French President Hollande recently complained to confidants that Merkel has always waffled when it came to Greece but also that she has never distanced herself from Schäuble and his Grexit plans -- not even in private.

Imposing Her Will

The euro crisis is driving a wedge between Berlin and Paris. Hollande is doing everything he can to prevent a Grexit, even if it means going behind Germany's back. Just two weeks ago, after the Greek referendum, Hollande and Merkel were in agreement that Athens must make its own reform proposals.

Merkel's people were thus surprised to learn that Hollande had provided the Greek premier with advisers to help him come up with a list of reforms. The plan to send French officials to Athens had been in the works for six weeks. On July 2, the social democratic leaders of France, Sweden and Austria, as well as Gabriel and the president of the European Parliament, Martin Schulz, met in Evry, near Paris, to deliberate over a solution for Greece. French Prime Minister Manuel Valls suggested sending French finance officials to Athens to help the government there formulate its request for emergency funds. Faymann, Gabriel and Schulz all agreed.

Now, after the summit, Merkel sees herself in a role she never wanted. She's the woman who imposed her will on Europe. "The French president has fought hard for a solution," Austrian Chancellor Faymann said, while handing out no such praise to Merkel.

Germany's relationship with power has been precarious ever since the end of World War II. That has to do with its central location in Europe and its reluctance to use military force. Most of all, though, it has to do with its Nazi past. Any bravado or harsh words are immediately conflated with a resurgence of German megalomania.

The response to this problem by German policymakers has been the use of "soft power." Germany has led the Continent not with orders, but with persuasion and cooperation. Every chancellor has relied on the relationship with France in matters of European policy. This alliance prevents a split between the northern European Protestants and the southern Catholics.

But now, a fault line is threatening to emerge. In early 2013, the Italian philosopher Giorgio Agamben wrote an essay for the newspaper La Repubblica in which he implored the "Latin empire at the heart of Europe" to resist Germany's dominance. At the time, it seemed like the idea of an overexcited essayist, but now it's clear that the southern countries are increasingly opposing the Continent's germanization.

Merkel's people can sense this mood change. A few months ago, Nikolaus Meyer-Landrut mused in a small group about Germany's changing role within the European Union. Meyer-Landrut was Merkel's European policy adviser for four years but soon he'll become the German ambassador to France.

Germany's Changing Position

Meyer-Landrut knows he has a reputation for being a tough negotiator. But it wasn't until the euro crisis that complaints about him from abroad began to pile up. It was said that the chancellor's adviser had presented his demands in a rude tone. He also apparently did not listen nor was he accomodating to other people's sensitivities. Meyer-Landrut, for his part, said he did not think that he had changed. It was more a question of Germany's position changing.

In the past, he said, Germany had always been the moderator. If Britain and France disagreed on, say, agriculture policy, it was up to the Germans to help them reach a compromise. Today, with matters concerning the euro, Germany finds itself in a different position. It must now enforce a policy regarded by its partners as extreme. This unavoidably changes perceptions of the country.

France, especially, has become much more critical. Pascal Lamy, a former EU commissioner for trade, recently said Europe was a constant struggle between discipline and solidarity. "The Germans," he said, "were exuding little solidarity and much discipline." It sounded like a reprimand.

Merkel pushed through her ideas with the logic of practical constraint rather than with the force of a brilliant speech. This method, however, clearly reached its limitations at the euro summit, in part, due to her indecision. France and Italy wanted to keep Greece in the euro no matter what, while Schäuble wanted a Grexit.

The compromise was that Merkel kept Greece in, but imposed conditions that could at least partly be described as penal. The euro crisis left Merkel with immense power; she now essentially shapes domestic Greek policy. But such power also calls for at least a smidgen of generosity, something she proved unwilling or unable to provide in the case of Greece.

At the post-summit press conference, it was with delight that she rattled off every condition Greece would have to fulfill, no matter how small. Really, the only thing that was missing was a declaration that she would provisionally take over the post of Greek prime minister, effective immediately.

Can Europe be led this way? Schäuble's stance in the euro crisis doesn't have to seem congenial, but at least it's based on a clear analysis of the situation. That analysis goes something like this: Greece is unable to handle the responsibilities that come with being a member of a common currency union. As a consequence, it must leave the euro. Merkel is like a teacher who disciplines unwilling students by smacking them across their fingers with a ruler. At most, this heightens their frustration, not their willingness to learn.

I'm a believer in the idea that Germany needs to assert a leadership role in matters in which it has the greatest stake (Greek debt and the Ukraine being the two best examples at the moment). But that leadership must be [...]

I'm a believer in the idea that Germany needs to assert a leadership role in matters in which it has the greatest stake (Greek debt and the Ukraine being the two best examples at the moment). But that leadership must be constructive in both fact and perception.
To my view, Germany would be well served by extending an olive branch to Greece now that it has made its (legitimate) financial point. Let Mr. Schauble deliver a program of debt rescheduling tied to the (verified) implementation of Greek reforms, limited exclusively to the German portion of the Greek debt. This would be a constructive step, and one that would advance the cause of German leadership.
It is possible though, that the damage has already been done and that it is too late for such a show of reasonable and programmed magnanimity.

c.ihlenfeldt 07/17/2015

2. Grottenfalsch

To have too many people on welfare is bad and destroys the moral fibre of a nation.
To have a whole nation on welfare is ridiculous.
Schäuble is right, this problem is not about money and money won't fix it.

To have too many people on welfare is bad and destroys the moral fibre of a nation.
To have a whole nation on welfare is ridiculous.
Schäuble is right, this problem is not about money and money won't fix it.

markchar 07/17/2015

3. So sad, so sad

The German leaders had a chance to shine. They had a chance to show the world how to lead with compassion and accountability. Now they have an image of the bully in the school yard. When a country is run by politicians you get [...]

The German leaders had a chance to shine. They had a chance to show the world how to lead with compassion and accountability. Now they have an image of the bully in the school yard. When a country is run by politicians you get narrow mindedness. When a country is run by technocrats you get statistics. There is no compassion in numbers. German leaders could have come out of this smelling like roses, instead ...

ewulf 07/18/2015

4. The EU project survival

It looks like the endless game with Greece´s problems on the spot light. However,on the other side of the equation, it may eventually be the case, that without a proper solutions to Greece , some time in the future, the real [...]

It looks like the endless game with Greece´s problems on the spot light. However,on the other side of the equation, it may eventually be the case, that without a proper solutions to Greece , some time in the future, the real option could be the failure of the integration project, to start all over again.-

jallen 07/18/2015

5.

A very interesting article. Thank you. As an American (with German heritage) I am very concerned that Germany is appearing to be domineering and now is open to criticism...and in my mind, rightly so. It would have been quite easy [...]

A very interesting article. Thank you. As an American (with German heritage) I am very concerned that Germany is appearing to be domineering and now is open to criticism...and in my mind, rightly so. It would have been quite easy to propose a plan of oversight and reform combined with humanitarian aid for the poor plus some debt relief. It appears that never crossed anyone's mind and that conjures up memories of Germany and the World Wars...not good. Also Schauble is an old man with old ideas. It is time to replace him. The damage he has done to Germany in the past few weeks will take years to clean up.